The Business Press: Upscale wine remains in favor, in moderation

By Chris H. Sieroty

Contributing Writer

When downtown Upland’s Pacific Wine Merchants showcased several new moderately priced vintages at a recent winetasting, it was a reflection of owner Fred Paciocco’s sense of direction as he steers his business through tough economic times.

He has created a casual atmosphere in an area once home to a Santa Fe train depot; it now houses a tasting room, cigar store and retail store that features more than 1,000 bottles of wine neatly stacked in rows of redwood racks and priced from $10 to more than $300 per bottle.

Paciocco originally opened his business as Cigar Exchange International in July 1995 in a 400-square-foot space tucked in the back of the Second Avenue Mall in downtown. The following year he opened Pacific Wine Merchants in a 700-square-foot retail space at the corner of Euclid Avenue and Foothill Boulevard.

“When we started we were just a cigar store, but that changed as customers began asking for a glass of wine along with their cigars,” Paciocco said. “Today, wine is two-thirds of our business, but cigars are still a major factor.”

After almost a decade of operating his business out of an inadequate space, he began looking for a larger retail location. That’s when in March 2007, the city of Upland and the San Bernardino Associated Governments (SANBAG) offered him a chance to lease space in the Depot, a 1937 Santa Fe Train Station located at 210 A St. The former depot also houses Boomers Coffee House and a Metrolink train station.

“They have been trying to revitalize downtown Upland for a longtime,” Paciocco said. “We benefited from being located downtown, but there just wasn’t the space available when we needed to expand our business. Our current location has benefited from the added foot traffic from the Metrolink station next door and from various local events and a new mix of businesses located downtown.”

Paciocco, who owns the store with his wife, daughter and son-in-law, takes a personal approach to purchasing and selling wine.

“One of the things we’re most successful in doing is going out and visiting wineries ourselves,” he said. “We also have several wine buyers that have been successful in creating relationships with wineries and a steady stream of vendors who visit our store on a regular basis. We are working hard at providing what our market is asking for.”

That market for the most part is the upscale wine and cigar buyer from Upland, Claremont and Rancho Cucamonga. But with an eye on the recession and some of his customers changing their shopping habits, Paciocco said his store needed to bring “price levels down” to around $25 to $50 per bottle on average to meet the new demand.

“We had to adjust to the market,” he said. “The trick is not to try and overload at any one price level. In the wine business, the margins are pretty thin.

“With about 1,100 different labels, we can offer a bigger selection than Costco or BevMo!. For us to be a profitable wine business competing with Costco or BevMo! on volume gets pretty tough. The way we make our money is to offer more selection, including the obscure brands you won’t find at the larger retailers. We also can give our customers more personal service.”

For example, Paciocco said his business relationships with various vendors allowed them to purchase a 2005 Mount St. Helena Cabernet Sauvignon from Napa that retails for about $20. “It’s been a big seller as customers still want to enjoy a quality bottle of wine at a quality price,” he said.

Paciocco said even though some of his customers are looking to spend less on a bottle of wine, there are still people willing to spend hundreds of dollars to acquire a limited vintage. To satisfy his high-end customers, he was able to acquire a “very limited” amount of a 2005 Dana Estates Cabernet Sauvignon that retails for $275 a bottle.

“As a small-business owner, the high unemployment rate is a concern of ours,” he said. “We are just trying to keep most of our offerings affordable to attract the widest customer base we can, from the blue-collar worker wanting a $5 cigar and $12 bottle of wine, to the customer who can afford $300 for a bottle of wine.”

Jon Fredrikson, a consultant with Gomberg-Fredrikson & Associates, a Woodside-based consulting firm specializing in the wine industry, agreed, saying: “Wine continues to move further into mainstream American adult lifestyles, with sales expanding incrementally based on cautious consumer spending. Consumers are changing their buying patterns by ratcheting down their everyday wine purchases to lower price points, but splurge on higher-priced wines at times because they view wine as an affordable luxury.”

Pacific Wine Merchants also offers products from Upland’s only winery, the Brandt Family Winery. For $26.99, customers can purchase a locally produced 2005 Santa Barbara County Syrah.

“It’s my son-in-law’s winery,” Paciocco said. “Brian (Brandt) buys his grapes out of Santa Barbara County and produces his wine locally. He produces 400 cases a year and has settled on producing Syrahs for the last couple of years.”

With the move to the depot has come the addition of a state-of-the-art wine bar, featuring the Enomatic Wine System. He said 24 wines are available by the ounce for customers to create their own winetastings. Customers can pay for the wine, which retails for between $1.29 per ounce and $3.39 per ounce, by using a debt card, he said.

Pacific Wine Merchants also offers tastings two nights a week. “On Wednesday, we might offer four different (wines) that are recent new arrivals,” he said. “While on Friday nights we might feature a representative from a winery who’ll bring a number of different choices for our customers to sample.”

Paciocco said the tastings and wine bar have been a successful addition to his business, as customers usually purchase several bottles after an event. He declined to release Pacific Wine Merchants’ annual sales figures.

Initially, the store’s focus was on wines from Napa Valley, but gradually that emphasis changed as he listened to customers’ requests and brought in what they wanted, including additional vintages from Europe and South America.

“We have always been able to get good deals on quality wines from Napa Valley,” he said. “But because of the economy, we have been able to import quality, more affordable wines from places like Australia, Italy, France, Argentina and Chile, which have been good sellers with our customers.”

But what you won’t find is a wide selection of wines produced by Inland Southern California wineries. Paciocco said his business features only a small selection of ports produced by Joseph Filippi Winery and Vineyards in Rancho Cucamonga.

He added that Inland wineries were producing high-quality products, but there just wasn’t the demand for them from his customers.

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